Financials & FinTech research, Galliano’s Financials Research

Victor Galliano

Financials & FinTech research

Financials & FinTech, EM & Developed Markets

Galliano’s Financials Research

Galliano's Financials Research provides fundamental research in Emerging Markets financials, including FinTech, as well as financials in select Developed Markets.

The investment style applied is generally value oriented, although Growth At Reasonable Price (GARP) strategies can also be used where appropriate. 

Our investment research approach aim is often contrarian, looking to capitalise on overly sceptical or optimistic consensus views. In terms of valuation techniques, the focus is on PBV ratio to ROE, PE multiples and dividend yield, as well as the application of PEG ratios and, where appropriate, Sum of the Parts (SOTP) valuations.

Equity Bottom-Up

<ul>
<li>Since our March-end report, our shorts – especially Kakao Pay – worked better than our longs, given the continuing turbulent conditions; Santander’s offer for Getnet minorities signals a specific opportunity</li>
<li>We still favour Mastercard in the megacaps, and we stick with PagSeguro and Nexi despite both having disappointed; Cielo has been a strong performer, but we would not chase it</li>
<li>Among our shorts, we remain negative on DLocal, given its very demanding valuations, and we still see Kakao Pay to be fundamentally over-valued; we reintroduce Paytm to the shorts list</li>
</ul>


Since our March-end report, our shorts – especially Kakao Pay – worked better than our longs, given the continuing turbulent conditions; Santander’s offer for Getnet minorities signals a specific opportunity
We still favour Mastercard in the megacaps, and we stick with PagSeguro and Nexi despite both having disappointed; Cielo has been a strong performer, but we would not chase it
Among our shorts, we remain negative on DLocal, given its very demanding valuations, and we still see Kakao Pay to be fundamentally over-valued; we reintroduce Paytm to the shorts list


Payment Companies Screens – More Constructive Market Signals or a Bear Market Rally?

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

<ul>
<li>We are increasingly concerned about Kakao Bank which has been losing market share to other leading Internet banks in Korea (especially to Toss bank). </li>
<li>We are also concerned about the Kakao Bank approving greater amount of loans to customers with weak to moderate credit ratings who have been rejected loans from commercial banks. </li>
<li>Our base case valuation of Kakao Bank is market cap of 16.4 trillion won or price of 34,504 won per share, which represents 16.5% lower than the current share price.</li>
</ul>


We are increasingly concerned about Kakao Bank which has been losing market share to other leading Internet banks in Korea (especially to Toss bank). 
We are also concerned about the Kakao Bank approving greater amount of loans to customers with weak to moderate credit ratings who have been rejected loans from commercial banks. 
Our base case valuation of Kakao Bank is market cap of 16.4 trillion won or price of 34,504 won per share, which represents 16.5% lower than the current share price.


Kakao Bank: Market Share Losses to Other Internet Banks & More Loans to Less Creditworthy Customers

<ul>
<li>Among EM banks, our top picks are Sberbank in Russia, Banco do Brasil and HDFC Bank in India; we are negative on recent IPO Nubank due to inflated market expectations</li>
<li>Our top picks for 2022 are BBVA and Banco BPM for Southern Europe banks. In Exchanges, we are positive on B3 of Brazil and SGX</li>
<li>In payments, we like Mastercard and Pagseguro, but we are negative on Paytm; we see BTG Pactual as an attractive pick and winner in the digital wealth managers and brokers</li>
</ul>


Among EM banks, our top picks are Sberbank in Russia, Banco do Brasil and HDFC Bank in India; we are negative on recent IPO Nubank due to inflated market expectations
Our top picks for 2022 are BBVA and Banco BPM for Southern Europe banks. In Exchanges, we are positive on B3 of Brazil and SGX
In payments, we like Mastercard and Pagseguro, but we are negative on Paytm; we see BTG Pactual as an attractive pick and winner in the digital wealth managers and brokers


2022 High Conviction Ideas in FinTech & Financials

<ul>
<li>Our payment company screens focus on the market value to processed volume ratio versus the take rate, market value to sales, and valuations relative to EBITDA and earnings growth</li>
<li>In the megacaps, we like Mastercard on valuation and growth; in emerging markets we favour PagSeguro and SBI Card, and small cap Getnet, also we believe that Stone is oversold</li>
<li>We are negative on Paytm and DLocal, which both did IPOs in 2021; we believe that both companies’ growth prospects are more than discounted by their earnings and EBITDA valuations</li>
</ul>


Our payment company screens focus on the market value to processed volume ratio versus the take rate, market value to sales, and valuations relative to EBITDA and earnings growth
In the megacaps, we like Mastercard on valuation and growth; in emerging markets we favour PagSeguro and SBI Card, and small cap Getnet, also we believe that Stone is oversold
We are negative on Paytm and DLocal, which both did IPOs in 2021; we believe that both companies’ growth prospects are more than discounted by their earnings and EBITDA valuations


Payment Companies – Focus on Value and Growth

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Equity Capital Markets

<div><p><a href="https://www.smartkarma.com/entities/paytm-mobile-solutions-pvt-ltd" target="_blank" data-smartkarma-citation="entities:26149:1" rel="noopener">Paytm (PAYTM IN)</a>, formally known as One97 Communications, is India’s largest payments platform based on the number of consumers, number of merchants, number of transactions and revenue as of 31 March 2021, according to RedSeer. Paytm has an overall payments transaction volume market share of 40%, and wallet payments transaction market share of 65-70% in India as of FY21, according to RedSeer. </p></div><div><p>Paytm will launch its IPO on 8 November at an indicative price range of Rs2,080-2,150 per share. The IPO comprises a primary raise of Rs83,000 million ($1.1 billion) and a secondary raise up to Rs100,000 million ($1.3 billion). The total IPO proceeds of $2.4 billion are around 10% higher than its earlier target. The three-day share sale will conclude on 10 November.</p></div><div><p>In <a href="https://www.smartkarma.com/insights/paytm-ipo-initiation-a-payments-led-super-app" target="_blank" data-smartkarma-citation="insights:54983" rel="noopener">Paytm IPO Initiation: A Payments-Led Super-App</a>, we stated as India’s largest payments platform, Paytm is well placed to benefit from this structural tailwind. While the COVID-19 pandemic was disruptive particularly to the non-payments business, Paytm should return to growth as the impact of the pandemic wanes and vaccination rates rise in India. </p></div><div><div><div class="content-highlight"><p>In <a href="https://www.smartkarma.com/insights/paytm-ipo-bright-spot" target="_blank" data-smartkarma-citation="insights:59999" rel="noopener">Paytm IPO: Bright Spot</a>, we stated that the recent results show a strong return to growth, reducing loss margin and reinforce our view that Paytm has attractive fundamentals. Our valuation analysis suggests that the price range is reasonable.</p></div></div></div>

Paytm (PAYTM IN), formally known as One97 Communications, is India’s largest payments platform based on the number of consumers, number of merchants, number of transactions and revenue as of 31 March 2021, according to RedSeer. Paytm has an overall payments transaction volume market share of 40%, and wallet payments transaction market share of 65-70% in India as of FY21, according to RedSeer. Paytm will launch its IPO on 8 November at an indicative price range of Rs2,080-2,150 per share. The IPO comprises a primary raise of Rs83,000 million ($1.1 billion) and a secondary raise up to Rs100,000 million ($1.3 billion). The total IPO proceeds of $2.4 billion are around 10% higher than its earlier target. The three-day share sale will conclude on 10 November.In Paytm IPO Initiation: A Payments-Led Super-App, we stated as India’s largest payments platform, Paytm is well placed to benefit from this structural tailwind. While the COVID-19 pandemic was disruptive particularly to the non-payments business, Paytm should return to growth as the impact of the pandemic wanes and vaccination rates rise in India. In Paytm IPO: Bright Spot, we stated that the recent results show a strong return to growth, reducing loss margin and reinforce our view that Paytm has attractive fundamentals. Our valuation analysis suggests that the price range is reasonable.

Brazil

PagSeguro Digital Ltd. provides financial technology services. The Company offers multiple digital payment solutions, in-person payments via point of sales devices, and prepaid cards services. Pagseguro Digital serves clients in Brazil and the United States.

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Pagseguro Digital Ltd (PAGS US)

Payment Companies Screens – More Constructive Market Signals or a Bear Market Rally?

In payments, we stick with our longs on Mastercard for its quality, PagSeguro and Nexi for value; we reintroduce Paytm to the shorts, adding it to...

Victor Galliano

2022 High Conviction Ideas in FinTech & Financials

Our 2022 high conviction ideas include buys on Sberbank, Banco do Brasil and HDFC Bank, as well as BBVA, Banco BPM, B3, SGX, Mastercard and...

Victor Galliano

Payment Companies – Focus on Value and Growth

A number of payment fintechs, after the recent market slide, are trading at attractive valuations again; we like Mastercard, SBI Card, Pagseguro,...

Victor Galliano

Paytm IPO: Valuation Insights

Paytm will launch its IPO on 8 November to raise $2.4 billion. Our valuation analysis suggests that the price range is reasonable.

Arun George

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Payment Companies Screens – More Constructive Market Signals or a Bear Market Rally?

In payments, we stick with our longs on Mastercard for its quality, PagSeguro and Nexi for value; we reintroduce Paytm to the shorts, adding it to...

Victor Galliano

Kakao Bank: Market Share Losses to Other Internet Banks & More Loans to Less Creditworthy Customers

Kakao Bank is suffering from market share losses to other Internet banks & more loans to less creditworthy customers. We expect further downside...

Douglas Kim

2022 High Conviction Ideas in FinTech & Financials

Our 2022 high conviction ideas include buys on Sberbank, Banco do Brasil and HDFC Bank, as well as BBVA, Banco BPM, B3, SGX, Mastercard and...

Victor Galliano

Payment Companies – Focus on Value and Growth

A number of payment fintechs, after the recent market slide, are trading at attractive valuations again; we like Mastercard, SBI Card, Pagseguro,...

Victor Galliano

Paytm IPO: Valuation Insights

Paytm will launch its IPO on 8 November to raise $2.4 billion. Our valuation analysis suggests that the price range is reasonable.

Arun George